Examples of Tax Evasion

• People in India employ a variety of tactics to avoid paying taxes, ranging from filing fraudulent tax returns and smuggling to falsifying documents and bribes. The penalty for not disclosing income ranges from 100 percent to 300 percent of the tax.
• People who engage in tax evasion are usually aware that they are doing so and that it is unethical. They only hope they aren't discovered. Tax evasion, on the other hand, is a felony with serious legal ramifications.
• Tax evasion is illegal because it lowers the amount of taxes paid, leaving the country or state short on funds.

Definition of tax evasion

• Tax evasion is a criminal offence in which a person or company knowingly avoids paying their true tax liability. Those who are detected avoiding taxes are usually charged criminally and face severe fines. Under the Internal Revenue Service (IRS) tax code, willfully failing to pay taxes is a federal offence.
• Both unlawful nonpayment and illegal underpayment of taxes are considered tax evasion. Even if a taxpayer fails to file the relevant tax forms, the IRS can still evaluate if taxes are owing based on information provided by other parties, such as W-2 information from an employer or 1099s. In most cases, a person is not regarded as guilty of tax evasion unless the refusal to pay is deliberate.
• Failure to pay taxes on time may result in criminal proceedings. It must be determined that the avoidance of taxes was a willful act on the part of the taxpayer before charges can be imposed. Not only can a person be held liable for unpaid taxes, but they can also be found guilty of official crimes and sentenced to prison. The penalties, according to the IRS, include no more than five years in prison, a fine of no more than $250,000 for individuals or $500,000 for businesses, or both, as well as the costs of prosecution.

Important Points

• The illegal non-payment or underpayment of actual tax responsibilities owed is referred to as tax evasion.

• Whether or not tax forms were filed with the IRS, the IRS can establish whether or not there was tax evasion.

• To prove tax evasion, the IRS must be able to demonstrate that the taxpayer purposefully avoided paying taxes.

• While tax evasion is against the law, tax avoidance entails finding lawful (and legal) ways to lower a taxpayer's liabilities.

Common examples of Tax Evasion

• There are two parts to failing to pay taxes on time. The first is tax evasion, while the second is tax avoidance. The distinction between the two is that tax avoidance entails discovering a loophole that allows you to avoid paying taxes and is not strictly criminal, whereas tax evasion entails not paying taxes when they are due and is technically prohibited. 
• These are some of the common examples of tax evasion.

Failure to make a due payment

This is the most straightforward technique to avoid paying taxes. They just refuse to pay it to the government, even when it is demanded. A person who engages in this type of tax evasion will not pay the tax, willingly or unwillingly, before or after the due date.

Smuggling

When certain items are transported from one location to another, whether across international or state borders, a tax or charge may be imposed. Some people, on the other hand, may shift these commodities in secret to evade paying the taxes or to avoid paying the tax entirely.

Falsely filing tax returns

When an individual files taxes, they may provide misleading or erroneous information in an attempt to reduce or avoid paying the tax that they are obligated to pay. This is also tax avoidance because the full picture isn't supplied, and they could be paying less than they should.

Incorrect Financial statements

The taxes that an individual or an organisation must pay may be determined by the financial transactions that occurred during the assessment year. The tax may be reduced if fake financial documents or accounts books are filed, showing incomes that are less than what was actually obtained.

Obtaining an exemption by falsifying documentation

To ensure that particular strata or individuals of society have a bit more financial freedom to progress, the government may have established specific exemptions and privileges. In some circumstances, members who do not qualify for such benefits will have documentation made to prove their membership in that group, allowing them to claim exemptions when they are not qualified.

Not disclosing income

This might be considered one of the most popular forms of tax avoidance. Individuals will simply not record any income they earn within a fiscal year in this situation. They don't pay any tax because they haven't recorded any revenue, hence they have effectively evaded all taxes. The most basic example would be a landlord who has kept tenants but has not informed the authorities that he has rented the house and is making money from it.

Bribery

There may be a case when a particular amount of taxes is owed and the individual is unwilling to pay it. In this instance, he or she may offer a bribe to officials in order to avoid paying the tax and make it 'disappear.'

Keeping money outside of the country

We've all heard horror stories about Swiss bank accounts. Offshore accounts are accounts kept outside of the country where information about transactions is not given to the income tax department, allowing the owner to avoid paying any taxes due on the wealth.

Tax Avoidance  vs Tax Evasion

While tax evasion necessitates the use of illegal ways to avoid paying proper taxes, tax avoidance involves the use of legal measures to reduce a taxpayer's liabilities. This can include things like making a charitable donation to a recognised organisation or putting money into a tax-deferred vehicle like an individual retirement account (IRA). Taxes on the invested funds, as well as any applicable interest payments, are not paid until the funds and any applicable interest payments are withdrawn in the case of an IRA.

Penalities of tax evasion

The income tax department can impose a variety of penalties on anyone who is found guilty of dodging or avoiding taxes. Companies that either fail to disclose, pay their own taxes or fail to deduct taxes at source when they are expected to face penalties.

Some of them could include:

• When income is not revealed, 100 percent to 300 percent of the tax is collected.

• If you don't pay your taxes, the assessing officer can charge you a penalty, but it can't be more than the amount you owe in taxes.

• If a person fails to file tax returns within the stipulated period, a penalty of Rs. 200 per day may be imposed for each day the returns are not filed.

• The penalty for concealing details of one's income or any taxable fringe benefits can vary from 100 percent to 300 percent of the tax payable.

• A penalty of Rs. 25,000 may be imposed if a person or a corporation fails to maintain their accounts properly as instructed by section 44AA.

• A penalty of Rs. 1.5 lakhs or 0.5 percent of the sales turnover, whichever is less, maybe imposed if a firm fails to have itself audited or fails to furnish a report of the audit.

• A punishment of Rs. 1 lakh may be imposed if an accountant's report is not given as ordered.

• If a company fails to deduct tax when it is obliged to during payments, the penalty could be the payment of the tax owed.

• These are just a few of the penalties that the Income Tax Department can levy, and they can be quite costly in some situations, so the best thing to do is make sure that all taxes are paid on time.